Home' Trinidad and Tobago Guardian : July 23rd 2015 Contents BG18 COMMENTARY
BUSINESS GUARDIAN www.guardian.co.tt JULY 23 • 2015
The debt crisis in Greece and
the historic accord to limit
Iran s nuclear capability thus
lifting crippling sanctions will
have global repercussions.
US President Barack Obama has shown
strong and courageous leadership on the Iran
issue. In doing so, he has fulfilled promises
on another of two prickly problems that he
inherited. The first, of course, was establish-
ment of diplomatic relations with Cuba after
more than five decades of US government
attempts to isolate the Caribbean island and
bring down its Castro-led regime. The second
is halting the threat that a radical Iran, with
a nuclear capability, poses to global peace. In
dealing with both these issues, amidst intense
hostility from the Republican Party, Obama
has shown that he is willing to "step out of
the rut of history".
At his inauguration in 2009, he had signalled
his intention to close down the detention camp
at Guantanamo Bay which, for two decades,
has imprisoned terrorist suspects without trial.
That promise is as yet unfulfilled, but by estab-
lishing diplomatic relations with Cuba, Obama
has undone the senseless stand-off policy
toward Cuba that had clearly failed. It is now
only a matter of time before the US Congress
will be compelled to lift the trade embargo
which it codified in law in the Cold War years.
The closure of Guantanamo Prison is bound
to follow as should the return of Guantanamo
Bay to Cuban sovereignty.
From the day of his inauguration, Obama
made it clear that he wanted an end to the
protracted hostile relations between the US
and Iran. In a pointed statement to the Iranian
government, he offered to "extend a hand of
friendship if you are willing to unclench your
fist." For the last six years, his administration
has worked toward that goal. It has now
reached a historic agreement by which sanc-
tions against Iran will be lifted in return for
its acceptance that the development of its
nuclear programme must be halted for more
than a decade.
The battle within the US is not yet won.
Congress still has to approve the accord with
Iran and the Republicans have vowed to reject
it. But Obama is resolute. While he would like
Congressional approval for the accord, he says
he will veto any legislation that seeks to derail
it. Over the next ten-year period or more,
Obama anticipates a verifiable halt to Iran s
development of a nuclear capability. The alter-
native is a continuing build-up of such a capa-
bility into a nuclear weapon that an isolated
Iran might be tempted to use with frightening
consequences. The Republicans and others,
such as Israel and Saudi Arabia, argue that
the removal of sanctions against Iran will allow
the country to earn hundreds of billions of
dollars from its oil and manufacturing indus-
tries that will facilitate the intensification of
hostility toward them.
What is now certain is that big European
and US companies regard the lifting of sanc-
tions against Iran as an opportunity for selling
the country billions of dollars in goods and
services it urgently needs in sectors such as
aviation, energy and manufacturing. Already,
Royal Dutch Shell, Total and Eni are seeking
opportunities. The Iranians also want foreign
investment especially in tourism, technology,
mining and banking.
It is by permitting international business
with Iran that the accord, signed by five nations
led by the US, will have a productive effect
on the global economy. As Iran revives its oil
and gas industry and other sectors of the econ-
omy, it will help to expand global growth
through the purchase of goods and services
The strengthening effect on the economies
of countries from which Iran makes direct
purchases will ripple through the international
community. Further, if Iran re-develops its oil
and gas production to pre-2011 levels, it could
have the beneficial effect of keeping world
prices below the crippling costs that obtained
until last November.
Analysts from financial institutions such as
the Swiss Private Bank, Norbert Ruecker, have
concluded that "Iran s return is set to keep
oil prices lower for longer alongside even
cheaper shale oil and peaking western world
oil demand." That s good news for small
economies that have been battered by high
Despite all his critics---and the often coloured
criticism---Obama has shown himself to be
amongst the most progressive and visionary
Presidents of the United States.
On the matter of vision, the Greek debt
crisis and the tailspin into which it has plunged
the nations that participate in the Eurozone,
coughed up an interesting new perspective
from the International Monetary Fund (IMF).
The Fund is contending that Eurozone creditors
should write off part of Greece s debt or at
least allow the country to make no payments
for 30 years.
Stating that the level of Greek debt is
"unsustainable" and that the country s financial
shortfall is now approximately US$94.12 billion,
the IMF, in a leaked memorandum, argued
strongly for write off of a significant portion
of Greece s debt estimated at in excess of
US$324 billion. It is clear that what the IMF
is saying is that without a write off or arrange-
ments for no repayment for at least three
decades, Greece will never repay its debt, and
the country will never recover.
It is refreshing to hear the IMF taking such
a stance on debt write off or forbearance over
a long enough period for the country to try
to recover. It would be helpful to economies
in many Caribbean countries if the IMF were
to take a similar approach with them. While
poor government policies did contribute to
their high debts in some cases, a significant
portion of those debts was incurred as a result
of external factors, such as the devastating
effects of hurricanes and the global financial
crisis created in the US and Europe in 2008.
A successful IMF-led initiative which argues
that, like Greece, these countries should be
eased from their current high debt repayments
at expensive interest rates would give them
the fiscal space they urgently need to grow
If what s good for the goose is equally good
for the gander, then what s good for the Greeks,
should be good for the Caribbean and other
small and vulnerable states.
The writer is a senior fellow at the Insti-
tute of Commonwealth Studies, University
of London and Massey College, University
Puerto Rico faces US$5.4 billion of bond
payments over the next 12 months, show-
ing the pressure on the Caribbean island
as it moves closer toward defaulting on
Puerto Rico and its agencies are on the hook for
US$635 million in August, the largest monthly bill for
the rest of 2015, JPMorgan Chase & Co. said in a July
17 report, citing data from Bloomberg and Standard
& Poor s. That includes a US$36.3 million payment
due August 1 from the Public Finance Corp., which
may not be made because the legislature failed to
appropriate the funds.
The schedule illustrates the costs ahead for the cash-
strapped commonwealth, where Governor Alejandro
Garcia Padilla is pushing to restructure a US$72 billion
debt load he says the island can t afford. The payments
approach US$1 billion in January and about US$2 billion
in July 2016, JPMorgan said. Puerto Rico has a US$9.8
billion budget for the year through next June.
"If we use dollars to make debt payments, we may
not have the cash to pay for government services,"
Luis Cruz, the commonwealth s budget director, told
reporters Monday in San Juan. He said officials are
looking at "all options" for honoring its obligations.
Puerto Rico is veering toward the largest restructuring
ever in the US$3.6 trillion municipal-debt market after
years of borrowing to paper over budget shortfalls.
The prospect has pushed down the price of common-
wealth bonds amid speculation about how investors
will fare. Officials are seeking to draw up a plan by
the end of August.
The island has more than a dozen types of bonds
with different security pledges, which complications
negotiations. General-obligation bonds are protected
by the commonwealth s constitution, while others are
backed by revenue such as sales taxes.
The scheduled August payments will cover US$333
million of interest and US$263 million of principal,
according to JPMorgan. Most of that is for sales-tax
debt, known as Cofina, and securities sold by the Gov-
ernment Development Bank.
Garcia Padilla said last month that Puerto Rico would
look to delay debt payments for "a number of years."
Melba Acosta, the development bank s president,
has said a restructuring wouldn t necessarily involve
paying less than the full value of securities when they
mature. Even so, analysts at money-management firms
including BlackRock Inc and Pacific Investment Man-
agement Co have speculated that bondholders may
have to accept less than they are owed.
Puerto Rico bonds have slumped 8.9 per cent this
year, according to S&P Dow Jones Indices data. By
contrast, the US$3.6 trillion municipal market has
rallied 0.3 per cent.
The IMF vision of debt and
Obama's boldness with Iran
Puerto Rico on the brink owes
investors US$5b in next year
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